But not for the reasons you think.
About a year ago, this tweet happened:
This tweet got parodied 11 months later:
The parody version got traction by being funny, but it’s not a perfect analogy. And the ways in which the analogy doesn’t line up with the original fascinate me.
First: An NFT isn’t (always) a receipt.
A non-fungible token or NFT is a unique digital identifier. Think of it like a VIN, but existing solely as digital information (i.e. it’s not etched into anything – although I suppose it could be).
Early successes in making money from NFTs usually connected the digital identifier to some type of artwork, whether physical (paint on canvas) or digital (JPEGs of anthropomorphized monkeys). These connections make it easier for ordinary folks to think of NFT ownership as akin to art ownership, or at least to receipt ownership. Maybe I can’t take apart a 50-foot mural painted on the side of City Hall and move it to my own apartment, but I can own a digital identifier that indicates I am connected to that artwork.
It is possible to use NFTs as receipts. For instance, if you were really into my bad MS Paint drawings of 90s cartoon characters, you could purchase one from me, and I could send you an NFT connected to that artwork as proof that you gave me money in exchange for the artwork.
The fact that NFTs can be used as receipts is why the donut analogy makes sense.
Yet – here’s where it gets weird – NFT ownership is not automatically the same thing as item ownership.
To put it in donut terms, NFTs create a world where it’s possible to buy a donut receipt, but never actually own a donut. What you own is a donut receipt. The receipt doesn’t prove you exchanged money for a donut; the receipt is what you received in exchange for your money.
(This conjures up an Inception-like universe of receipt receipts, and receipt receipt receipts, and so on, but we’ll let that eldritch horror lie.)
And Then There Was IP Law
To make this ownership problem more complex, NFTs are commonly attached to creative works: Visual artworks, music, and so on. Put another way, NFTs are commonly attached to items that fall under copyright law.
And in the copyright world, owning the item is not the same thing as owning the underlying rights.
A group of crypto types calling themselves the Spice DAO presumably learned this the hard way when they pooled their funds to purchase a rare copy of a book created for a never-produced screen version of Dune. The Spice DAO then started discussing what they’d do with the book, floating the idea of actually making the version of Dune sketched out in it.
Apparently, no one had ever told them that owning a physical copy of a book doesn’t mean you own the rights to the intellectual property it contains. (Otherwise, everyone who ever bought a copy of Harry Potter would be a multimillionaire.)
So: Owning an NFT doesn’t mean you own any physical referent object in the real world. It doesn’t mean you own any rights at all vis a vis any physical referent object or its intellectual property contents. It only means you own a unique digital identifier.
Enter the Destroyed Diamond
@TaschaLabs does, at least, appear to grasp that when you own an NFT, what you own is a unique digital identifier, not the underlying object.
In fact, that’s the entire point behind Tascha’s Destroyed Diamond.
Tascha’s Destroyed Diamond is an NFT that signifies pretty much exactly what the title implies. It is a diamond, belonging to Tascha, which Tascha intended to destroy – and apparently succeeded in powdering, if not actually vaporizing.
If I’m reading the tweets correctly, the goal of Tascha’s Destroyed Diamond was to demonstrate that the value of the diamond can be ported, or transferred, or symbolized, by the NFT – the digital identifier. The underlying theory is that because the digital tag is unique, it retains value even if the physical referent (the diamond) doesn’t even exist.
Here’s Why I’m Obsessed
My obsession with Tascha’s Destroyed Diamond boils down to three points:
It verified in obvious terms that buying an NFT is not the same thing as buying its referent.
As I noted above, it could be the same thing. You could buy a diamond and its NFT together, for instance. But buying an NFT doesn’t automatically confer ownership rights in its referent. Buying a donut receipt doesn’t guarantee you get a donut.
After all, it’s still Tascha’s Destroyed Diamond.
If buying an NFT isn’t the same thing as buying its referent, NFT bros are sleeping on major untapped sources of revenue.
For example: If I can buy the NFT of Tascha’s Destroyed Diamond (I can), and if that NFT doesn’t lose value whether or not Tascha’s Destroyed Diamond actually exists in any meaningful sense (suspend your disbelief for a second), then what is stopping me from creating or buying NFTs of other items that also do not currently exist?
There’s no reason time should be a limiting factor. An NFT of the Library of Alexandria – another valuable thing that once existed but has since been destroyed (in an actual fire this time) – should be not only feasible, but staggeringly valuable.
Yet I doubt it will be, because:
NFTs depend on buyers not understanding the first two points.
The original tweet claims that “What NFT is doing to the concept of asset, few understand.” So let me clear it up a bit:
NFTs are a market for unique digital identifiers. That’s it. NFTs are like if your friend sent you a list of randomly-generated numbers via Google Docs, and you sold each of those numbers. “They’re valuable because each number is unique!” you tell all your friends. “Buy one now! Nobody will ever have your exact same number!”
“What can I do with these numbers?” your friends ask. “Should I turn them in to the lottery commission to claim a prize? Do they prove I own a car? Can I use them for identity theft? If I put them all in my auto-dialer, can I run a telemarketing scam getting people to donate $1 to me today so they feel happier?”
“No,” you explain. “You just own a string of numbers in this Google Doc. But they are unique!”
…It’s pretty clear why NFTs started having real-world referents fairly quickly.
By the way, the existence of a market for unique digital identifiers doesn’t fundamentally change the concept of an asset. Tascha’s Destroyed Diamond seeks to make clear that NFTs have value separately from any real-world referent. But scarcity or real-world referents are not where value comes from.
Like every other item in commerce, NFTs derive their value from demand. Demand is driven by a sense of utility. We exchange money for things because we believe the thing will provide us proportional utility. (I use “utility” broadly to include any sense of being better off, including aesthetic or emotional.)
Book collectors understand this. While book scouts and dealers in rare books do swap price estimates, when pressed they will admit that the actual value of a book is only what someone is willing to pay for it. In other words, the value of used and rare books depends on demand.
For some people, bragging rights and a sense of being “in” on something are high-utility items. NFTs appeal to this crowd, and they’ll continue to do so for some time.
But buying a receipt and buying a donut are not the same thing. If you want to own a real-world referent, buy the referent. If you want to own a digital identifier whose existence depends on technology that already eats more energy than the annual expenditures of Denmark, buy an NFT.